I just read the Morgan Stanley Research "Airlines" March 27,2011, and the sky isn't falling for AMR/AA . I'll see what I can do to post it, it's a lot of info of all the airlines.
AMR/AA
" Well run airline, has long history of avoiding potential liquidity squeezes in down turns"
No where did it mention potential Bk.
I have long said that AMR has been a well run airline and that they have managed to find debt to cover their losses.
But this analysis by Fitch does show that AMR is in a uniquely worse situation than other carriers....
"AMR faces some uniquely difficult challenges due to its position as the U.S. legacy carrier with the highest unit labor costs. In order to move from the bottom of the pack in margin potential and cash flow generation, it needs to either deliver a larger RASM premium relative to the other legacy carriers or push unit costs lower. Neither outcome is likely in the near term as AMR is lagging the industry on RASM growth in 1Q'11 and management remains locked in a struggle with the unions over new contracts that could push labor costs still higher. With the majority of U.S. airline collective bargaining agreements amendable by 2012, AMR hopes to bridge the cost gap as pay rates at other carriers rise.
"AMR is facing another year of substantially negative free cash flow, and leverage is likely to move higher this year in response to fuel-driven operating weakness. Fixed cash obligations are large, with planned capex of $1.6 billion this year (about $1.1 billion of that total is tied to new aircraft deliveries) and scheduled debt maturities of $2.5 billion. Cash pension payments are expected to total $520 million this year (versus $640 million in accrued pension expense). Given these heavy cash obligations and the need to continue a multi-year fleet renewal program, AMR will not be in a position to begin reducing debt levels until solid RASM growth and moderating fuel prices push operating margins back to levels seen in 2006 and 2007 (the peak of the last demand cycle). "
http://finance.yahoo.com/news/Fitch-Affirms-AMR-Corp-and-bw-1640012681.html?x=0&.v=1
Given AMR's relatively strong cash position, they do have a ways to go before they are forced to file for BK... but they also have huge amounts of cash that will be needed this year for debt maturities, although that debt could possibly be refinanced, even if on worse terms.
What your assessment fails to recognize is that AMR continues to significantly underperform its peers on practically every measure of corporate financial performance. At some point, there will be no more money available to continue to cover AMR's losses.
Further, as I have noted elsewhere, AA"s competitors are aggressively entering AA's core markets because AA is very poorly positioned to defend itself. That is precisely why AA's RASM growth is trailing the industry - and the difference will grow as AA's top revenue markets no longer deliver the revenue that AA has counted. When the numbers start to show much larger declines in revenue up against an already elevated cost basis and further cost pressures such as from higher fuel prices, it may be too late for AA to act - and you as employees will have no choice but to incur major pay cuts or layoffs.
Wall Street analysts don't make 18-24 month forecasts because they can only use the information the company provides, which rarely goes out more than 9-12 months.
Given that AA's labor contracts are nowhere near close to being resolved, there is no assurance that the situation will improve anytime soon.
I'm not talking about the bottom falling out in the next 9-12 months unless a major financial stress hits the industry. But without resolving its labor contracts and bringing its costs in line with its competitors, I can assure you that AA will be significantly weakened one year from now. If you don't believe me, then let's check back a year from now and see....
If you and others are not afraid of pushing the company that far, you might want to consider EA, PA, and TW among others that thought they could demand a little more for a little longer - and it never worked out the way the employees hoped.
